In the first quarter (Q1) of fiscal year (FY) of 2019, which runs from July 2018 to June 2019, the annual economic growth rate moderated slightly from the previous quarter’s multi-year high, according to FocusEconomics’ Consensus Forecast – Middle East & North Africa December report.
Furthermore, the report cites that the largest contributions to growth in Q1 came from the natural gas, wholesale and retail, agriculture, and telecommunications sectors, consecutively. Meanwhile, they attributed the slight decline in growth to higher inflation, as well as a small uptick in the unemployment rate, and slower industrial production growth.
The Q2 got off to a rocky start in October, with business activity in the non-oil private sector, contracting for the second consecutive month, at a faster pace than in September. More encouragingly, the IMF is close to making a further $2bn financial assistance available to Egypt, and praised the government for recent reform efforts on 31 October.
Consequently, FocusEconomics’ panellists expect the GDP to expand by 5.2% in FY 2019, which did not change from last month’s forecast, and by 5.2% again in FY 2020.
In the same context, the non-oil private sector remains lacklustre in October. Emirates NBD Egypt’s purchasing managers’ index (PMI) ticked down to 48.6 in October, compared to 48.7 in September. The index therefore remained below the 50-threshold, that separates expansion from contraction in the non-oil private sector, for the second consecutive month.
“Our panellists expect total investment to grow by10.5% in FY 2019, which is up by 0.2% from last month’s forecast, and 9.9% in FY 2020,” the report states.
In regards to the monetary situation, inflation accelerated to 17.7% in October, after a16% in September, underpinned by higher prices for food and beverages, housing, water, electricity, gas and other fuels, as well as transportation. The report forecasts inflation to reach an average of 12.8% in Calendar Year (CY) 2019 and 10.3% in CY 2020.
The Central Bank of Egypt (CBE) left the overnight deposit rate at 16.75%, the overnight lending rate at 17.75%, and the main operation rate at 17.25%, at its monetary policy meeting on 15 November.
The report foresees the CBE to deliver rate cuts in their next meeting on 27 December. The overnight deposit rate is seen by the end of CY 2019 at 14.25% and CY 2020 at 11.71%.
On the other hand, FocusEconomics expects the pound to slightly weaken and end CY 2019 at EGP 18.17 per USD and CY 2020 at EGP 18.59 per USD, down from the current rates at EGP 17.89 per USD.